Q2 2025 Earnings Summary
- The company expects overall orders and sales for the fiscal year to be on par or exceed last year's, despite the variability in their large project business.
- The expansion of the e-sales channel is anticipated to increase revenue and improve efficiency by lowering selling costs and allowing sales teams to focus on higher-value, more complex sales while maintaining gross margins.
- Daktronics has a competitive advantage with the largest U.S. manufacturing facility, enabling them to bring in components at value within the U.S., which is unusual in their industry and may mitigate the impact of tariffs compared to competitors who produce outside the U.S.
- Uncertainty about tariffs under the new administration could negatively impact Daktronics, as they source many components like semiconductors from China and other countries, making their costs susceptible to tariff changes.
- Operating expenses are expected to increase due to significant non-recurring consulting fees related to digital transformation initiatives, which might impact profitability. They expect to invest up to $5 million to $6 million more during fiscal 2025 for these initiatives.
- Gross profit margin has decreased year-over-year, from 29% to 26.6% in the first half of the year due to sales mix differences, which may indicate ongoing margin pressure.
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Tariffs Impact
Q: How will tariffs from the new administration affect Daktronics?
A: Management indicated that changes in tariffs could impact the cost of components sourced from China, such as semiconductors and printed circuit cards. While it's difficult to predict specific effects without knowing the new administration's actions, tariffs may affect margins depending on how broadly they are applied. Since competitors also source from China, Daktronics may not be at a competitive disadvantage. -
Revenue Outlook
Q: Do you expect a steeper revenue decline in the second half?
A: Despite quarterly fluctuations due to their large project business, management expects overall orders and sales for the fiscal year to be on par with or exceed last year's. They anticipate revenue to be "lumpy" quarter to quarter but do not foresee a significant decline. -
Gross Margin Expectations
Q: How should we think about gross margins for next year?
A: Gross margins have held up nicely over the last couple of quarters. While margins might come down in a softer second half, management believes they can maintain them, attributing potential variations more to volume than price compression. -
Operating Expenses
Q: Will consulting fees for digital transformation continue next year?
A: The consulting fees for the business transformation initiative are expected to be contained within this year. However, some digital transformation initiatives may extend into fiscal '26 and possibly into fiscal '27, which could continue to incur consulting costs. -
E-Sales Channel Growth
Q: How is the e-sales channel trending, and its effect on margins?
A: The e-sales channel is growing, focusing on small, standard orders like shot clocks for high school basketball. This expansion should reduce selling costs and allow the sales team to focus on higher-value sales, with the expectation to maintain gross margins on these products. -
Additional Changes Expected
Q: What other changes are expected with the new administration?
A: Management finds it too soon to predict specific changes from the new administration, including potential shifts in regulations or operational adjustments. They acknowledge there's significant activity but cannot estimate impacts at this time.
Research analysts covering Daktronics Inc.